MARK Cutifani, CEO of Anglo American, said he was surprised by the improvement in prices for palladium, saying he expected its substitution with platinum by automakers.
Speaking to the Financial Times, Cutifani said: “Am I surprised prices have risen to this degree? Yes. And the reason is I thought there would be more substitution [from carmakers] back to platinum,” he said.
“It will still happen over time. I have not changed my view. What I underestimated, very clearly, was the focus on the automakers have on making sure they manage emissions.”
The newspaper said Cutifani had described the increase in the palladium price as a bubble was early as March 2018, but that its value was likely to remain high for some time.
At that point palladium was trading at around $1,350 an ounce. The price subsequently rose as high as $2,555/oz before dropping back.
“The way I put it, the CEO of an auto company won’t get fired for spending $20 on a vehicle on a bit more palladium. What they might get fired for is not meeting their emissions targets. That’s the critical issue,” said Cutifani.
Analysts are now saying the palladium price has formed a bubble. “The dynamics are so strong. Nobody can tell me that this is just fundamentals,” Commerzbank analyst Carsten Fritsch told Bloomberg News. “This is already becoming a bubble”.
South Africa, a major miner of the metal, reported a sharp drop in platinum group metal (PGM) production in November. Adding to the bullish mood was the US-China trade truce, and record car sales in Europe in December even though they are unlikely to be repeated.
“It’s overbought but ignoring it,” said Rhona O’Connell, head of market analysis for Europe, the Middle East, Africa and Asia at INTL FCStone. There should be a sharp pullback at some point, she said.
“The risk on the downside lies with some speculative profit taking, but any correction should be met with aggressive buying and remain short-lived,” precious metals refiner and trader MKS PAMP Group said in a note in January.